MARC Ratings has affirmed its AA-_IS rating on Sinar Kamiri Sdn Bhd’s RM245.0 million Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah with a stable outlook. As at end-March 2022, the outstanding sukuk stood at RM215.0 million.

The rating is primarily driven by Sinar Kamiri’s 21-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB) under which demand risk is insulated as the national power company will purchase the energy generated by the plant at a fixed tariff. The rating is moderated by the risk of variability in solar irradiance which determines the amount of energy generated and performance risks associated with the plant operations.

In 2021, electricity generation was lower than P90 projection by 0.80% due to lower than projected irradiance. Accordingly, Sinar Kamiri posted a lower revenue of RM33.1 million against a projected RM34.2 million. Notwithstanding this, cash flow from operations (CFO) of RM26.4 million was sufficient to cover debt obligations with debt service coverage ratio (DSCR) without cash of 1.14x. As at end-February 2022, the cash holdings balance was at RM28.4 million, which is more than sufficient to meet upcoming sukuk repayment obligation of RM6.2 million in July 2022.

Under the base case projection, the project is expected to achieve minimum and average financial service coverage ratios of 2.27x and 2.42x throughout the sukuk tenure. The projected cash flows can withstand moderate stress scenarios of up to 2.4% in plant unavailability, increase in operations and maintenance cost by 10%, and lower electricity generation under P99 estimates.

The stable outlook incorporates our view that Sinar Kamiri will meet satisfactory energy generation without significant operational issue. 

The rating could be upgraded if the plant’s performance improves with higher debt service coverage ratio and is able to build up a strong liquidity buffer and reduce borrowings.

Downward pressure on the rating could occur if the plant is to experience operational issues that will significantly impact energy generation and debt service coverage metrics.